ECON 103 Lecture Notes - Lecture 4: Force H, Structural Unemployment, Unpaid Work
Document Summary
The long-run equilibrium of the economy is found where the aggregate-demand curve crosses the long-run aggregate-supply curve . When the economy reaches this long-run equilibrium, the expected price level will have adjusted to equal the actual price level. As a result, the short-run aggregate-supply curve crosses this point as well (mankiw) The effects of a shift in aggregate demand. In the short run, shifts in aggregate demand cause fluctuations in the economy"s output of goods and services . In the long run, shifts in aggregate demand affect the overall price level but do not affect output . Because policymakers influence aggregate demand, they can potentially mitigate the severity of economic fluctuations (mankiw) The effects of a shift in aggregate supply. Stagflation: a period of falling output and rising prices. Shifts in aggregate supply can cause stagflation. Policymakers can mitigate the impact by shifting the aggregate demand curve to the right but this causes higher inflation due to rising price level.